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Wednesday, May 7, 2014

The Rally on Xcite Energy is a Classical Example of a False Breakout…

The recent strong bullish engulfing candle in Xcite
Energy market (LSE:XEL) is a classic example of a false breakout which traps
buyers as it appears the price is going towards the sky. The price may later
retrace downwards.

One strong bullish candle does not make a bullish trend,
but having a series of candles with higher highs and lower highs would confirm
a bullish trend and make the speculator approach the market with confidence.

In order to be on a safe side of the market, one
needs to consider the dominant bias and consider only the long-term to
medium-term outlook. Exponential breakouts tend to be false unless they are confirmed
after several days. These false breakouts can make money occasionally, but only
seasoned speculators can handle that, for the market tends to be volatile,
especially if a breakout is based on some fundamental reason.

On the chart, the ADX period 14 is at the level 30 (strong
trend), and the DM+ just crossed the DM- to the upside (a bullish indication).
The MACD default parameters, has its histogram above the zero line, but the
signal lines are yet to cross the zero line upwards. The signal line needs to
cross the zero line upwards before there can a Bullish Confirmation Pattern in
the chart: otherwise one needs to be careful.

Unless the price crosses the resistance line at
90.00 to the upside and closes above it, the current price action proffers an opportunity
to sell when the price rallies and in a context of a downtrend.

This forecast is ended with the quote below:

“New
traders should expect to lose money. It’s part of the initiation process. They
should understand that they can make money if they do it the right way, but the
excitement of getting started often causes them to rush into trading.” – Perry
Kaufman